DarioHealth Corp (DRIO) 2024 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Dario Health first quarter 2024 Results Conference Call. (Operator Instructions) this call is being recorded on Wednesday, May 15, 2024.

I would now like to turn the conference over to Kat Parrella, Investor Relations Manager at Dario. Please go ahead.

Thank you, operator, and good morning, everybody. Thank you for joining us today for a discussion of Dario Health First Quarter 2024 financial results. Leading the call today will be Erez Raphael CEO; of Dario Health, who will be joined by Rick Anderson, President and Dario health. After the prepared remarks, we will open the call for Q&A.

An audio recording and webcast replay for today's call will also be available online as detailed in the press release invite for this call for the benefit of those who may be listening to the replay or archived webcast this call is being held on Wednesday, May 15, 2024.

This morning, we issued a press release announcing our financial results for the court first quarter of 2024. A copy of the release can be found on the Investor Relations page of Dario helps websites. Actual events or results may differ materially from those projected as a result of changing market trends, reduced demand or the competitive nature of Dario health industry.

Such forward-looking statements and their implications may involve known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ materially from those projected in the forward-looking statements discussed on this call are subject to other risks and uncertainties, including those discussed in the Risk Factors section and elsewhere in the company's first quarter 2024 quarterly reports on Form 10-K.

Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company's press release issued this morning and in the company's other filings with the SEC.

In addition, certain non-GAAP financial measures may be discussed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company's current performance.

Management believes the presentation of these non-GAAP financial measures is useful for investors, understanding and assessment of the company's ongoing core operations and prospects for the future. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in this morning's press release.

With that, I'd like to introduce our as Erez Raphael, Chief Executive Officer, at Dario Health.

Thank you, Kat, again, to all of you for joining our call this morning. Q1 2024 represents a major turning point in the scaling of our business and the acceleration of our path to profitability. We are happy to announce that our core B2B2C business channel, which represents recurring revenues mainly from health plans and employers is continuing to scale up and is now the largest of our three revenue channels, accounting for about 71% of our performance revenues for the quarter.

This is a milestone that we have been working toward for some time due to the scale and due to the high SaaS-like gross margins of this revenue stream that is above 75%, it should exceed 80%. And the faster than expected achievements and operational efficiencies post will acquisition we have never been better positioned to reach profitability.

I would like to share more information on the clear trends that we see in the business and are adding to our confidence in our ability to scale in which profitability first variable is still accounting revenue scale the organic value of revenues this quarter continued to grow alongside the additional revenues from the two acquisitions, which were added since February 15 pro forma for Q1, well at an annual run rate of $31 million for all three Channel Islands together, well, approximately $22 million of this being our core B2B2C business. The legacy value potion of the B2B2C, channel revenue grew sequentially over the fourth quarter of 2023 organically by more than 30%.

This growth can be attributed with the advent of platform extensions to existing contracts and new customer launches. We'll see this growth progress throughout the year with the continuation of our revenue growth from recently launched accounts and multiple new contracts in Q2 and further execution of our pipeline, which currently holds more opportunities that we've ever had this revenue stream is growing for both Dario China and Central China.

We have confidence that this claim of revenue will accelerate in 2024 and 2025 is both value and we'll have a strong client base, including three out of the top eight national health plans such as Cigna element and Aetna, as well as big name national employers, such as Amazon, Google and Microsoft, we believe we will achieve significant revenue growth mainly in our core B2B2C business on a combined basis for 2024 and even greater growth in 2025, including cross-sell opportunities that we are currently executing on.

This should enable us to achieve our goal of 80% gross margins because this monthly recurring revenue stream already has margins that are above 75% as it stands today another factor that contributes to our confidence of reaching cash flow positive next year is the [Twill] value of merger and synergies will leveraging on efficiencies are progressing faster than we initially anticipated.

When we announced the acquisition, we communicated an estimated 30% efficiencies over three years but after a recently executed cost reduction, we are on track to achieve efficiencies that are higher than 30% by the end of this year, a year ahead of schedule with the revenue growth I mentioned before the faster than anticipated cost synergies and high gross margins of 80%.

We believe we are on track to breakeven in the second half of 2025. We believe that the coming quarters will show continued improvement in all elements of our financial profile from top line to OpEx, gross margins and reduction in losses.

Looking into the other revenue streams. In the first quarter, our B2C business generated approximately $2 million, which is consistent with the channel expected of $8 million annual revenue run rate this channel is already profitable.

Third revenue stream, we call commercial strategic, which comes mainly from pharma partners and is milestone-based rather than monthly recurring revenues and therefore should be viewed on an annual basis.

This quarter, we recorded approximately $500,000 in revenues. We expect an annual run rate of $6 million from this challenge to continue through 2024 to our original $30 million decrease in OpEx, but this excludes any additional revenues. We are hopeful to see materialize from increased demand from pharma following the full acquisition above all else.

We are the most excited by the demand for the top line. We are now three months into the acquisition, and we are seeing the effect that the expanded product offering has on our pipeline, both from the B2B2C, to employers, health plans and pharma with few complete opportunities with our existing clients on the GLP-1 offering that we have we already signed six new contracts and we see growing demand from employers. We believe this is something that will accelerate moving forward because it's clear that adoption of the GLP-1 should be companion with behavioral change that will make the wafers sustainable.

Another aspect of our business that has always been attractive to our partners is our data with the large number of conditions that we cover, and billions of data points collected for millions of users by Dario and Twill. Our collection of data is not only deeper but far more comprehensive on a level that is unique to value.

This is useful for us as we continue to refine our products to deliver the best clinical outcomes possible generative [AI] and microservices are being implemented in multiple industries in healthcare. It is clear. It will promote in drug discovery and consumer engagement and personalization.

Over time, proprietary data sets will be monetized either internally through the creation and documentation of services for externally to IP licensing and or strategic transactions. We believe that the consumer centric data set we have and the scale of this dataset is an asset that will be valuable for running such models and will position us well to be part of this big devolution.

With that, I want to hand over the call to Rick Anderson.

Thanks, Harris. Our B2B2C, revenue grew substantially from the fourth quarter of last year to the first quarter of this year. As we saw the impact of new customer launches, customer expansions and the impact of the twill acquisition. We have more than 15 customers launching in Q1 and Q2 of this year, and we have customers from last year sales cycle continuing to sign contracts into Q2, both products on the private label that platform have launched.

And we have seen it continue to add customers to the mine companion platform in Q1 and Q2, a trend we expect to continue with related increases in revenue for the next several quarters. We have signed an agreement to expand with one of our health plan customers through a partner, and we expect to launch that expansion later this year. In addition, we expect to add an additional health plan and a handful of off-cycle self-insured employers throughout the year.

The acquisition of Twill will also brought a broader opportunity to enable pharmaceutical customers through Twill, patient acquisition and adherence platform. This platform leverages the core twill platform used by their employer and health plan. Customers making the delivery highly efficient and high-margin Twill has a proven track record of its ability to activate patients and increase adherence with several of the largest pharmaceutical companies in the world over the last year.

They have refined this platform into a licensee model that we expect to bring a our revenue starting in 2024 from a couple of large pharma companies that are already piloting this solution. And we believe based on early interest and traction that we'll be able to expand this to added significant additional revenue in our recurring ARR, B2B2C, business by the end of 2024 and into 2025.

We are very pleased with the first quarter of 2024 employer sales season with significantly increased activity and opportunities through benefit consultants compared to the first quarter of 2023. We are seeing more opportunities and the opportunities we are seeing are at least 200% larger in the first quarter of 2024 compared to the first quarter of 2023.

We believe this is a product of the efforts that we have put into developing relationships with employee benefit consultants and the increasing number of reference customers that we have built over the last couple of years.

As I have mentioned in the past, selling to employers and health plans is a step function business that's done correctly allows you to build trust and confidence through execution resulting in step-function increases in revenue each year.

Benefit Consultants are a significant source of employer opportunities, and this increased volume speaks also to the scalability of our sales infrastructure as most self-insured employers are on a [11 to 12, 31] sales cycle we believe the vast majority of the accounts that we close between now and the end of 2024 will launch in 2025.

We are also expecting significant growth in our health plan business in 2025 based on opportunities currently in our pipeline. We expect to add at least one additional national health plan later this year, which will launch in 2025. And we expect an additional 2025 expansions from at least two of our other current health plans.

Our acquisition of twill enables us to offer a broader array of conditions and product functionality to our customers. This builds on our promise of more conditions through one integrated consumer centric platform, which the market continues to evolve towards.

We see this in our pipeline with over 80% of our opportunities being for more than one condition. Our configurability allows customers to buy the full platform or parts of it with the ability to consolidate other conditions.

At a later date, we find that this message is resonating well in the market. Product integration is well underway, and we expect to have the first product with integrated Dario and twill capabilities launched in the fourth quarter of this year, early customer response to the combined company has been strong with almost a dozen of our customers expressing interest in a cross-sold product with the combined product.

And we can compete in more RFP customer opportunities, and we believe the combined capability will enable us to increase our win rate and our revenue per customer.

In summary, we are confident in our revenue growth in 2024, and we are excited about the customer traction we already seen in the 2024 sales cycle for 2025 revenue, we believe we will dramatically accelerate our revenue in 2024 and 2025 across our B2B2C, and strategic B2B channels.

With that, I would like to turn it back over to Erez.

Thank you, Rich. On the strategic decisions that we have made over the last few years, reaching a turning point in the scaling of our business and acceleration toward profitability today. The Dario platform is the most consumer-centric, the most comprehensive in terms of conditions covered and has the most proven track record in terms of clinical performance improvement cost savings in the space today,

Dario has massive fine base and book of business, including three out of the top eight national health plans such as Cigna elements and Aetna as well as big name national employers such as Amazon, Google, Microsoft and key pharma companies such as Sanofi, [can likely] all of which are contributing to our B2B2C, revenue, which is growing intensively on Entavio twill integration page and other factors that contribute to our confidence reaching cash flow positive next year in the 12 value of managed and say that is where the leverage with the efficiencies that we mentioned and progressing about a year ahead of our original schedule on track to achieve an above 30% by the end of the year.

We believe that the businesses see recurring revenue channel alongside the sufficiency will be the main driver of our acceleration to profitability. Second half of 2025 at $54 million in revenue.

With that, I want to open the call for Q&A session.

(Operator Instructions).

Charles Rhyee, TD Cowen.

Hi, this is Adam on for Charles for taking our questions. Wondering to begin with, has anything changed in the agreement with Sanofi that could affect milestone payments from them over the course of this year. I'm wondering how we should think about timing of the payments in 2024.

Looking at the first quarter strategic payments here, understand that there's lumpiness quarter to quarter and we should be looking at the full year, but I wanted to come back to that and wonder what Sanofi looks like over the course of this year.

Yeah. Sure, so be good morning, guys, and thanks for the question and there is no fundamental change in the way that we are executing on the agreement with Sanofi, and we do see some additional opportunities with the addition of twill into our product offering. And we do expect that the additional additions twill is going to create the opportunities, the Synopsys.

So, overall, the deal with this, the $30 million they exist and yes, that can still stay lumpy but overall, as I stated on the earnings, we are looking on somewhere between $6 million to $8 million in revenue yearly from the strategic that is coming from some of your other sources of revenue. And so overall, we believe that the later this year.

And we've been balancing the revenue in a way that we're going to be able to save $6 million to $8 million. Ideally, we will be in a position that we will do maybe even more than that by having the Twill platform also adopted. And we are having as specific discussions about that, not only we can offer them but they also with idle time that are looking into the addition of trailing twill that are the top billings.

That's helpful. Thank you. With regards to the ethanol ramp, obviously, good to see the contribution there this quarter. I'm wondering if you can share, are you seeing utilization volumes there as you'd expect to see so far? And how should we thinking about that over the course of this year and maybe contributing to revenue? Two questions here?

In terms of what we're seeing with that, and as I mentioned on the call, is that we've launched both products actually and the utilizations about what we would expect on from that, we expect that they will continue to add customers to the platform throughout the year.

As a matter of fact, we're seeing them add essentially every month, more people onto the platform and they are selling through the ASO employer sales cycle. So we'll expect to another one group of customers come on midyear and then ended the year, but they're adding every month right now basically to the platform and the revenue from both of those products is on a [PPM] basis.

So, we are getting paid for everybody who has access to the platform. So, it's not a utilization-based contract, but the underlying utilization is more or less what we would have anticipated, obviously were I'm early in the year from that launch, but from what we're seeing so far.

Thanks. And last question would be with regard to the $60 million in signed contract value that you guys had previously talked about. How should we be thinking about that phasing in over the course of this year and maybe next year as well. Are these things that can see maybe in the coming quarters? Or are these opportunities that really phased in over time?

Yeah, Thanks for this question. So overall, we believe that it's going to materialize this year and into the kind of first half of next year. We think that we're going to see that and we'll keep building the we keep telling sign contracts and it's being added to the $60 million. So overall, we look at it as something that will be materialized right Some are like mid of next year.

That's very helpful. Thank you.

Thank you. (Operator Instructions) and there are no further questions at this time. I would like to turn it back to Erez Raphae, for closing remarks.

I would like to thank everyone and I'm looking forward to see you in the next quarters where we're going to continue to report on our progress on all the [bundles], top line, gross margins, OpEx and bottom line. [Through] our path to profitability. Thanks, everyone.

Ladies and gentlemen, this concludes today's conference call and thank you for participating. You may now disconnect.